Restructurings dominated UK private equity deal activity in the first quarter, with troubled companies appearing in the two biggest transactions.

The $427m (€321m) investment from three private equity firms and a hedge fund to restructure estate agent Countrywide was the biggest deal, followed by the $121m investment by Warburg Pincus in the restructuring of Premier Foods.

The deals came as the UK seemed set for a large wave of restructuring. Corporate finance firm KPMG estimated UK insolvencies could exceed 5,000 this year, compared with 3,225 last year and 2,230 in 2007.

By contrast, total private equity deal value in the UK fell by 93% in the first quarter of this year to $771m from $11.7bn in the same period last year, according to data provider Dealogic. The deals represented a 23% decline from the fourth quarter of last year, when deal values amounted to $1bn.

Deal values in Europe, including the UK, dropped by 90% from the first quarter of last year, when deals reached $29.1bn. Global values fell by 85% from the first quarter of last year to $9.5bn.

UK private equity deals as a proportion of overall mergers and acquisitions fell from 13% in the first quarter of last year to 2% in the first quarter of this year. However, they rose slightly from 1% in the fourth quarter of last year.

Firms agreed no acquisitions larger than $500m as firms failed to secure financing for such deals. Firms agreed two deals worth between $100m and $500m and five worth just under $100m.

The consortium planned to reduce the company’s interest payments by three-quarters from £740m (€818m) to £175m. This would enable Countrywide to slash its yearly debt-servicing bill of about £60m to about £17.5m, according to Jim Clarke, its chief executive.

Countrywide had operating profits of £97m in 2007, according to reports filed with Companies House. Clarke said the moves to reduce the debt burden had been tabled because of “unprecedented times in the housing market and the mortgage market, which call for that level of change”.

He said: “This was a proposal from a group of bondholders, putting the company in a stronger position to deal with what’s going on in the wider housing environment.”

Warburg Pincus agreed the second largest deal, paying $121m for a 15.7% stake in Premier Foods last month after it became clear the food producer would struggle to raise the £379m it needed in the public markets.

Richard Morley, director at NBGI Private Equity, said: “There are a number of potential deals in the market coming out of distressed positions, which may be either from a group that’s distressed and under financial constraints and so needs to sell assets, or it may be because the company is in financial problems.

“We are probably seeing as much dealflow as ever but there is certainly a greater proportion that is distressed, and there are a lot of deals being introduced that aren’t going to happen.” He said barriers to deals included raising finance, too much uncertainty about the company’s market and the vendors expecting unrealistic deal values.

Barclays Private Equity, the mid-market firm that looks set to spin out from Barclays Bank, agreed the third biggest deal with its $77m takeover of Bounty Group, a platform that advertises to new mothers, last month. The deal, which private equity firms had eyed since January, used a debt package which is understood to have been in place since just after New Year.

Christiian Marriott, a director at UK private equity firm Barclays Private Equity, said: “It is still not easy all over Europe. We certainly felt towards the back end of last year that our experience was that deals were relatively easier to finance on the continent than in the UK and, certainly at the start of this year, we felt the market throughout the UK was pretty difficult to navigate because of the lack of clarity on the economy and the debt markets.

“Bounty has a pretty conservative debt package and is a fairly modest size investment. It’s not surprising that the only thing we have done in the UK fits those criteria.”

He said Barclays had had a good relationship with Bounty’s vendor, US media company Kaboose, which he highlighted as particularly important for securing deals.

Other deals in the first quarter included lower mid-market firm Key Capital Partners’ $5m management buyout of fashion company Sabotage last month.

The deal came as many firms decided to avoid the sector because of the slowdown in consumer spending.